S&P DJI to remove Chinese firms from indices after U.S. blacklisting

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S&P DJI said it would remove A-shares, H-shares and ADRs of 10 companies including Hikvision and Semiconductor Manufacturing International Corp from all equity indices prior to the market open on Dec. 21.

The company said it will also remove 11 securities issued by Chinese companies from its fixed income indices before Jan. 1.

Hikvision and SMIC did not immediately respond to a request for comment.

“The order … may impact the ability of market participants to replicate S&P DJI Equity and Fixed Income indexes containing securities affected by the order,” S&P DJI said in a statement.

Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ (NYSE:MUFG) Kokusai Asset Management in Tokyo, said that funds following the S&P indices “will have to sell. This goes beyond the routine annual changes to names on the index.”

“Once the passive funds start selling, the active funds will be inclined to do the same.”

S&P DJI’s move comes after index provider FTSE Russell said last week that it would remove eight Chinese firms from its products to comply with the U.S. executive order, which barred U.S. investors from buying securities of blacklisted firms starting in Nov. 2021.

The company said it had acted on feedback from index subscribers and other stakeholders.

The executive order, unveiled in November and first reported by Reuters, is designed to deter U.S. investment firms, pension funds and others from buying shares of Chinese companies designated by the Defense Department as backed by the Chinese military.

Hikvision previously said that the U.S. order’s decision to pursue it was “groundless”.

Hikvision shares in Shenzhen gained more than 4% in early afternoon trade on Thursday after the S&P DJI announcement. SMIC’s Shanghai shares rose 1.01% and its H-shares fell 0.45% in Hong Kong.